Near-term platinum price weakness mayfind some relief in a stronger rand
Heraeus
Precious Metals Appraisal no. 22
No. 22 | 18.07.2022
The platinum market is forecast to have a surplus of nearly 650 koz this year. Increased rollout of platinum-rich three-way catalysts combined with robust heavy-duty vehicle demand has contributed to a reduction in the surplus year-on-year. The surplus, however, is an indication of relatively weak market fundamentals for platinum. Global jewellery demand is forecast to stagnate this year, largely owing to Covid lockdowns and lower consumer spending in China. Investment has been lacklustre year-to-date, with net ETF metal outflows to the end of June at 266 koz already offsetting the inflows of 264 koz during the whole of 2021. These dynamics remove price support in the short term.
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The rand is presently at a historically weak position against the US dollar. Despite posting net gains of 10% since the Covid-related sell-off in 2020, at 17.16 the rand is the weakest it has been against the dollar in almost two years. Historically, a weak rand is strongly correlated with platinum price weakness.
Foreign-exchange speculators have been betting heavily on the rand weakening further. The specs’ net long position on the USDZAR currency pair reached its greatest ever volume of more than 22,000 contracts in late Q2 and may have begun a reversal. Extreme spec positioning tends to occur near the end of trends. A change in the net positioning could be a signal of a change in the direction for the rand and platinum price.
Short-term price pressure persists. Strength in the dollar is largely due to the Federal Reserve’s rapid interest rate hikes along with the rising risk of recession in leading economies. It is expected that the Fed will implement another hike of at least 75 bp at the end of July. This will give further support to the dollar versus emerging market currencies such as the rand, potentially pushing the platinum price down further.
A strengthening of the rand should support the platinum price in the medium term. The current net specs’ position at an extreme potentially signals the market may have already priced in a weaker South African economy, owing to Eskom’s power supply struggles in addition to the Fed tightening cycle and its impacts on emerging, commodity export-driven economies such as South Africa. Therefore, the recent change in the specs’ position could indicate the start of a pivot, with a reversal in the rand and platinum price following.
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